Three weeks ago when news of the dramatic gating and liquidation of Third Avenue’s high yield debt focused fund first hit, we said that “now that the dreaded gates are back, investors in all other junk bond-focused hedge funds, fearing they too will be gated, will rush to pull what funds they can and submit redemption requests, in the process potentially unleashing a liquidity – and liquidation – scramble within the hedge fund community, which will first impact bonds and then, if the liquidity demands continue, equities as well.”
Sure enough, promptly thereafter several other junk-debt focused hedge funds shut down, culminating with yesterday’s liquidation of Whitebox’s various multistrategy mutual funds.
And now, moments ago we learned, another hedge fund has decided to call it quits, this time chess-afficionado Doug Hirsch’s event-driven $500 million Seneca Capital, which according to Bloomberg is returning most outside capital by today.
Bloomberg adds that “Seneca is returning money amid the worst year since 2011 for event-driven funds, which on average declined 2.3 percent through November. The closing adds to a roster of hedge funds, both big and small, that have shuttered in 2015 as the industry struggles to generate profits. LionEye Capital Management, another event-driven fund, is closing after losses, while BlueCrest Capital Management, Fortress Investment Group LLC and BlackRock Inc. are liquidating some of their funds.”
Yet oddly enough, like in various recent hedge fund closures, Seneca’s YTD loss was not extensive: the fund, which made wagers on corporate events such as mergers, spinoffs and restructurings, said it lost 6 percent this year in its domestic fund, hardly dramatic enough for such a terminal step.
And yet in his December 21 letter Hirsch said that “I am no longer able to continue making the commitment and sacrifices required to run outside capital. Despite negligible redemption requests and increasing market opportunities that are the result of a challenging year in event-driven investing, I cannot in good faith start next year with the dedication required to manage your capital.”
Hirsch, who founded his New York-based firm in 1996, said he will continue investing his own money through Seneca and intends to make a “significant” allocation to a fund that his partner, Jon Schwartz, is planning to start.
In addition to running Seneca, Hirsch is perhaps better known for being one of the founders of the Sohn Investment Conference.
The Sohn Investment Conference is one of the hedge fund industry’s biggest events and raises money for pediatric cancer research and care. Hirsch helped start a foundation 20 years ago honoring the memory of his friend, Wall Street professional Ira Sohn, who had died from cancer at the age of 29. The foundation has raised more than $60 million.
The Sohn conference is best known for uncovering deep “fundamental” investment theses. As such, Hirsch’s decision is perhaps a fitting testament and epitaph to the death of “markets”, which as even Bank of America noted last week, are so broken due to central bank intervention, that no fundamental investing is possible any more.